Partnership receives more time for section 754 election

Plain-English summary

An LLC taxed as a partnership underwent a technical termination and inadvertently failed to make a timely section 754 election for the resulting tax year. That election allows partnership property basis adjustments after certain distributions and transfers of partnership interests. The IRS found that the partnership acted reasonably and in good faith and that relief would not prejudice the government. It granted 120 days from the ruling date to file the election, effective for the requested tax year.

Ruling snapshot

• Question: Could a partnership receive an extension to make a late section 754 basis-adjustment election?
• Outcome: Approved, with 120 days to file the election.
• Key authorities: IRC §§ 734, 743, 754; Treas. Reg. §§ 1.754-1, 301.9100-1, 301.9100-3.

Full text (IRS public release)

Internal Revenue Service                                         Department of the Treasury
                                                                 Washington, DC 20224

Number: 201640011                                                Third Party Communication: None
Release Date: 9/30/2016                                          Date of Communication: Not Applicable
Index Number: 9100.00-00, 754.02-00
                                                                 Person To Contact:
---------------------------                                      -------------------, ID No. ----------------
------------------------------------                             Telephone Number:
--------------------------                                       --------------------
----------------------------                                     Refer Reply To:
                                                                 CC:PSI:B01
                                                                 PLR-117784-16
                                                                 Date:
                                                                 June 14, 2016




X                   =         ----------------------------------------------------------------------------------------------------
                              -----------------------

State               =         ------------

Date 1              =         ----------------

Date 2              =         --------------------------------

Date 3              =         -----------------------

Date 4              =         --------------------------




Dear --------------

This responds to a letter dated June 2, 2016, submitted on behalf of X by X's authorized
representative, requesting that X be granted an extension of time pursuant to §
301.9100-3 of the Procedure and Administration Regulations to make an election under
§ 754 of the Internal Revenue Code.

FACTS

The information submitted states that X was formed as an LLC under the laws of State
on Date 1 and became taxable as a partnership on Date 2 when it first had more than
one member. X experienced a technical termination under § 708(b)(1)(B) of the Code
PLR-117784-16                                 2

on Date 3. X inadvertently failed to timely make a valid § 754 election for the taxable
year ending Date 4.

LAW AND ANALYSIS

Section 754 provides that if a partnership files an election, in accordance with
regulations prescribed by the Secretary, the basis of partnership property shall be
adjusted, in the case of a distribution of property, in the manner provided in § 734 and,
in the case of a transfer of a partnership interest, in the manner provided in § 743. Such
an election shall apply with respect to all distributions of property by the partnership and
to all transfers of interests in the partnership during the taxable year with respect to
which such election was filed and all subsequent taxable years.

Section 1.754-1(b) of the Income Tax Regulations provides that an election under § 754
to adjust the basis of partnership property under §§ 734(b) and 743(b), with respect to a
distribution of property to a partner or a transfer of an interest in a partnership, shall be
made in a written statement filed with the partnership return for the taxable year during
which the distribution or transfer occurs. For the election to be valid, the return must be
filed not later than the time prescribed by § 1.6031-1(e) (including extensions thereof)
for filing the return for that taxable year.

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable
extension of time to make a regulatory election, or a statutory election (but no more than
6 months except in the case of a taxpayer who is abroad), under all subtitles of the
Internal Revenue Code except subtitles E, G, H, and I. Section 301.9100-1(b) defines
the term “regulatory election” as an election whose due date is prescribed by a
regulation published in the Federal Register or a revenue ruling, revenue procedure,
notice, or announcement published in the Internal Revenue Bulletin.

Section 301.9100-3 provides the standards the Commissioner will use to determine
whether to grant an extension of time for regulatory elections that do not meet the
requirements of § 301.9100-2. Under § 301.9100-3, a request for relief will be granted
when the taxpayer provides evidence to establish to the satisfaction of the
Commissioner that the taxpayer acted reasonably and in good faith, and that granting
relief will not prejudice the interests of the government.

CONCLUSION

Based solely on the information submitted and the representations made, we conclude
that the requirements of §§ 301.9100-1 and 301.9100-3 have been satisfied. As a
result, X is granted an extension of time of the earlier of 120 days from the date of this
letter to make an election under § 754, effective for the taxable year ending Date 4. The
election must be made in a written statement filed with the appropriate service center. A
copy of this letter should be attached to the statement filed.
PLR-117784-16                                  3


Except as specifically set forth above, no opinion is expressed concerning the federal
tax consequences of the facts described above under any other provision of the Internal
Revenue Code and the regulations thereunder. Specifically, no opinion is expressed or
implied concerning whether X was or is a partnership for federal tax purposes.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.


                                       Sincerely,

                                       Associate Chief Counsel
                                       (Passthroughs & Special Industries)



                                       By: David R. Haglund
                                       David R. Haglund
                                       Branch Chief, Branch 1
                                       Office of the Associate Chief Counsel
                                       (Passthroughs & Special Industries)

Enclosures (2)
Copy of this letter
Copy for § 6110 purposes


cc: